ESG, SRI, Impact Investing – what is it? Blockchain and impact investing – a winning combo, conscious capitalism and the Belief Economy, Tunisia’s academics challenge environmental issues, the women of sustainable finance, sustainable vineyards, new tax loophole can draw private capital to distressed areas, Japan’s lofty ESG goals… and more
Environmental, social and governance (ESG), socially responsible investing (SRI) and impact investing are industry terms often used interchangeably, but they are not the same. If you are confused, this quick primer from Investopedia can get you sorted:
ESG – The Environmental, Social and Governance practices of an investment can affect its performance. ESG factors are combined with traditional financial analysis to help identify risks and opportunities. Investments with good ESG scores have the potential to deliver good returns, while those that have poor scores can negatively affect returns. Investopedia breaks down ESG factors that are used to analyze an investment in this table.
SRI – Socially Responsible Investing goes beyond ESG by eliminating or selecting investments according to specific ethical guidelines. For example, an investor might not want to invest in a mutual fund that invests in companies that engage in environmentally destructive practices. Conversely, an investor may seek to invest in funds that promote human rights. The goal is to make a profit and either avoid doing damage or promote doing good in the world according to your own beliefs and values.
Impact Investing – The objective of impact investing is to help an organization or business accomplish specific goals that are beneficial to society or the environment. This could be anything from socio-economic development in poverty-stricken areas to investing in a non-profit to research clean energy.
Currently, 30% of all investors own responsible investments and this is increasing daily. If you are interested in voting with your dollars to solve a problem while generating returns, you should ask your broker about these opportunities. (If you don’t have a broker, are new to investing or want to learn more, you may be surprised to know that opportunities for everyday folks who don’t have a lot of money to invest are on the rise. Check out 4 Ways to Make Good Money With Good Companies.)
As more and more capital flows into socially and environmentally focused businesses and projects, the need for measuring impact increases. A survey conducted by The Global Impact Investing Network’s (GIIN) found that 40% of 200 funders see tangible data on performance as significant. The IXO Foundation believes that blockchain can be the answer. It is developing a “proof of impact” protocol which allows data about projects to be recorded on a distributed ledger. Did that tree get planted? Did that child get vaccinated? Impact results can be verified by funders around the globe with the blockchain to prove that their investment met its goal.
IXO creates a cryptographic token that’s issued when the claim is authenticated (the impact has been made), and which could become the basis for a more organized and verifiable form of impact investing. IXO Foundation is backed by grants from the UNICEF Innovation Fund and Innovation Edge, a local investment fund. Several aid agencies such as the United Nations World Food Program are already using a blockchain-based system to distribute payments and track their impact. In addition to verifying impact, the potential for blockchain to offer a new way to raise funds for projects that are in line with the UN’s Sustainable Development Goals to end poverty, curb climate change and conserve the environment is endless. This makes blockchain and impact investing a winning combination.
This May in El Kantaoui – Sousse, Tunisia, the 3rd Annual International Conference on Integrated Environmental Management for Sustainable Development will be held to provide a forum for discussion amongst scientists, professionals, and academia in different areas of environmental engineering and sciences.
Environmental protection has moved to the forefront as a requirement that goes beyond state borders to reach a global dimension. This awareness has resulted in numerous treaties, directives, and conventions, and has even changed how business is conducted. Protection of the environment, one of the pillars of sustainable development, has become an absolute priority for the international community.
Keynote speaker, Dr. Leila Basti, Assistant Professor, Tokyo University of Marine Science and Technology, will discuss the dangers of harmful algae blooms and how climate change interacts with their encroaching expansion. Harmful algal blooms (HAB) occur when colonies of algae grow out of control and produce toxic effects on all both humans and all marine life. HABs have been reported in every US coastal state and their occurrence is on the rise.
FA is running a series on women in sustainable finance who are shaking things up by educating financial advisers on the use of ESG data to benefit investors.
Colleen Denzler – CIO of First Affirmative Financial Network and President of the SRI Conference. First Affirmative specializes in helping clients make money by investing in companies that contribute to a clean, healthy environment, treat people fairly, embrace equal opportunity, produce safe and useful products, and support efforts to promote a more peaceful world. Denzler is also responsible for the agendas of the annual SRI Conference which hosted 800 financial professionals in 2017.
Pamela Jacobs – Executive Managing Director of Impact Investing at Envestnet Inc. Jacobs co-leads the impact investing businesses, focusing on product innovation and advisor education. According to Jacobs, impact investing has moved into the mainstream and educating financial advisors is one of the biggest challenges the financial industry faces. Despite growing interest amongst advisors, she claims that it is the investors themselves, particularly women and millennials, that are driving the growth of impact and ESG portfolio strategies. Jacobs is managing the Envestnet launch of online educational tools to help educate advisors and their investor clients about sustainable investing and its advantages to all.
A new provision in the Republican tax bill is called the “Investing for Opportunities Act.” This loophole allows investors to defer capital gains taxes by investing their capital gains in distressed areas designated as “opportunity zones.” And capital gains taxes can even be reduced if the investments in distressed areas are held for five to seven years. The bill also creates “opportunity funds” that help investors locate, execute, and share risk on investments in low-income neighborhoods.
With as much as $2.3 trillion in unrealized capital gains in U.S. stocks and mutual funds, the new provision could draw significant investment to low-income communities. The legislation was based on an idea pushed by the Economic Innovation Group, a bipartisan D.C. entrepreneurship think tank which combines innovative research and data-driven advocacy to address America’s most pressing economic challenges.
People are sick of an economic system focused on growth for the growth’s sake. Welcome to the Belief Economy. The Belief Economy is driven by the buying power and influence of the Millennial and iGen generations who believe that capitalism can be a force for good. Their buying power and influence could grow to $1.4 trillion by 2020, and they are drawn to companies that have an authentic passion or mission that aligns with their beliefs. Some signs that the Belief Economy is here:
When Trump announced that the size of Bears Ears and Grand Staircase-Escalante National Monument would be reduced, Patagonia filed a lawsuit against the action and ran a message on its website which read “The President Stole Your Land.” REI and North Face also publicly criticized the moves.
The emergence of the internet and social media is not the only reason the Belief Economy exists, but these platforms give rise to the notion that everything is connected and every action has an impact. The digital nativeness of Millennials and iGen has fostered a global civic-mindedness that extends to the brands they choose. Today it is easier than ever to connect with those who share similar beliefs via social platforms and hold brands and governments accountable.
The end of the “me first” attitude and the birth of the simple idea of making good things happen for people and the planet can transform the world. By embracing the idea of conscious capitalism, brands can create business models around making money and making things better. Make money and do good. Everybody wins.
Market forces are driving the global wine industry towards sustainability. Businesses that sell wine to retail consumers are increasingly demanding plans that show wineries’ commitments to environmentally responsible approaches.
Supermarket procurement managers have established what wineries refer to as a “sustainability hurdle” that must be met in order to sell in their stores. Tesco, Marks & Spencer, Whole Foods, and even Walmart seek to focus much of their wine inventory on sustainable, organic wines due to their corporate branding positioning.
Restaurants in key markets offer an increasing number of certified sustainable, organic and biodynamic wines to pair with foods that are natural, organic or “farm to table.”
Consumers are increasingly concerned about where their food and beverages come from and whether they were produced in a manner with respect for the environment and ethical and social principles.
Wine industry associations have established sustainability standards. US, Chile, Germany, Italy, New Zealand and South Africa are amongst the most rigorous. Sustainability certification programs require a specific score in order to be certified. Wineries are judged on:
- Supply chain engagement, transparency, communication, data sharing.
- On-farm biodiversity and ecosystems management.
- Monitoring soil fertility, degradation and erosion.
- Integrated pest management.
- Limited use of chemical pesticides, herbicides or fertilizers.
- Reduced water consumption for irrigation and for use in the winery.
- Use of renewable energy.
- Glass Production: Recycled.
- Distribution fuel use.
- Labor rights; safety, community social responsibility.
In addition, while climate change has hit the wine industry hard, the wine industry itself has also been a culprit in global warming. The industry is now being shaped by compulsory environmental regulations as well as the increasing demands of environmentally conscious consumers. The wine industry simply must consider sustainability a critical performance factor.
The Japan Times hopes to promote ESG issues by issuing an ESG Consortium in English due to rising global investor demand. While interest in ESG is increasing, there is a shortage of ESG information from Japanese firms available in English for a global audience. The Japan Times hopes to lead the way in providing up to date ESG reporting by Japanese corporations.
Interest in ESG investment in Japan gained traction when Japan’s Government Pension Investment Fund, the world’s largest pension fund with 155 trillion yen under management, invested 1 trillion yen in three ESG indexes. However, a recent survey by Reuters shows that 72% of 247 Japanese companies were not selected for ESG indices, and 83% of the selected companies were not interested. While global ESG investment rose from $18.2 trillion in 2014 to $22.8 trillion in 2016, Japan only accounts for 2%. Traditional corporate sentiment that focuses solely profits is strong. While Japan has been strong in the “E” department, it’s “S” and “G” factors are a work in progress.
Hiromichi Mizuno, chief investment officer at the Government Pension Investment Fund (GPIF), wants to take it to the next level in 2018 so that Japan can catch up with other countries and possibly get ahead of them. He believes that promoting ESG will help market growth over time because it reduces risks such as lack of corporate governance which can threaten a company’s future.
“I want Japan to become the fastest-improving country in terms of global ESG rankings.” – Hiromichi Mizuno, Chief Investment Officer, GPIF
photo by Karsten Würth